Director of Public Prosecutions v Benevento Property Investments Pty Ltd
[2019] VSC 54
•14 February 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
CONFISCATION AND PROCEEDS OF CRIME LIST
S CI 2017 02215
| DIRECTOR OF PUBLIC PROSECUTIONS | Applicant |
| and | |
| BENEVENTO PROPERTY INVESTMENTS PTY LTD (ABN 61 088 849 852) | First Respondent |
| and | |
| AUSTRALIA & NEW ZEALAND BANKING GROUP LTD | Second Respondent |
| and | |
| ANGELO PAT RUSSO | Third Respondent |
| and | |
| MARK DOHRMANN & PARTNERS PTY LTD | Fourth Respondent |
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JUDGE: | MOORE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 September 2018 | |
DATE OF JUDGMENT: | 14 February 2019 | |
CASE MAY BE CITED AS: | DPP v Benevento Property Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2019] VSC 54 | 1st Revision: 14 February 2019, correcting medium neutral citation |
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CONFISCATION – Variation of restraining order – Real property subject to restraining order – Mortgagee seeking to exercise power of sale – Whether variation could be made enabling payment of legal expenses – Confiscation Act 1997 ss 14, 26, 72, 133 and 133A.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Ms R Burton | Office of Public Prosecutions Victoria |
| For the Third Respondent | In person via videolink | |
| For the Fourth Respondent | Ms A Kinda | Conlan Cummings Lawyers |
HIS HONOUR:
Introduction
The third respondent, Mr Angelo Russo, is the sole director, secretary and shareholder of the first respondent, Benevento Property Investments Pty Ltd (‘Benevento’).
Benevento is the registered proprietor of two properties; one in Tatura East, the other in Toolamba West in the State of Victoria (‘the properties’). The second respondent (‘the ANZ’) is the registered mortgagee of both of the properties. The fourth respondent, Mark Dohrmann & Partners Pty Ltd (‘Dohrmann’), has an unregistered mortgage over both of the properties.
On 19 February 2017, Mr Russo was charged with various offences, including murder and attempted murder.
On 19 June 2017, the Court made orders pursuant to s 18 of the Confiscation Act 1997 (‘the Act’) restraining any person from disposing of or dealing with the properties and from disposing of or otherwise dealing with Mr Russo’s shares in Benevento. The orders were made for the purpose of satisfying any order for compensation that may be made under the Sentencing Act 1991.
On 19 July 2018, the Director of Public Prosecutions (‘the DPP’) made an application under s 26 of the Act to vary the orders made by the Court on 19 June 2017. In substance, the DPP sought orders permitting the ANZ to sell the properties, with the proceeds of the sale, after payment of costs and expenses, being paid to the ANZ as mortgagee. The balance of the funds from the sale of the properties would be held by the Department of Justice and Regulation on trust and restrained until the occurrence of automatic forfeiture under s 35 of the Act, or until further order of the Court.
The parties, except for Mr Russo who did not advance any submission on the point (or the controversy referred to below), agreed that the Court should make orders to the above effect. Orders were made by the Court on 20 September 2018.
The remaining controversy is between the DPP and Dohrmann and concerns the determination of the payment out of Dohrmann’s interest in the properties from the proceeds of sale. It is agreed that orders should be made to the effect that, following the payment to the ANZ of its security in the properties, Dohrmann be paid an amount equal to a default judgment obtained by it against Benevento in respect of a loan facility provided by Dohrmann to Benevento, together with statutory interest in respect of the period since the default judgment. The issue between them is whether, in addition to those amounts, Dohrmann is also entitled to have paid to it an amount comprising its legal costs incurred since the default judgment, with such costs determined on a solicitor–client basis.
Background
On 1 December 2016, Dohrmann entered into a loan agreement with Benevento pursuant to which Dohrmann agreed to loan Benevento $35,780.50 (‘the loan agreement’). Mr Russo personally guaranteed the loan and Benevento provided security in the form of charges over its interest in the properties. On 1 December 2016, Benevento mortgaged the properties to Dohrmann (‘the Mortgage’). The Mortgage was executed by Mr Russo on behalf of Benevento and incorporated a memorandum of common provisions.
The Mortgage was not registered as there was already a mortgage registered by the ANZ on the title of each of the properties. On 3 December 2016, Dohrmann lodged a caveat against the properties notifying its interest in them as chargee.
On or about 18 January 2018, Dohrmann issued a complaint in the Magistrates’ Court of Victoria against Benevento and Mr Russo by reason of their failure to pay interest on the moneys advanced to them, or to repay the advance, in accordance with the terms of the loan agreement. On 2 March 2018, the Magistrates’ Court made a default order against Benevento for $61,929.43 (‘the default judgment’), comprising a principal amount of $59,395.63, interest of $716.00 and costs of $1,817.80.
On 23 July 2018, the DPP gave notice to Dohrmann of an application to this Court under s 26 of the Act to permit the ANZ to exercise its power of sale in respect of the properties.
On 2 August 2018, the solicitor for Dohrmann filed an affidavit dated 1 August 2018 in the proceeding under s 26 of the Act. Amongst other things, the solicitor deposed that Dohrmann sought orders protecting its interest in the properties. That interest was said to extend to the amount due under the default judgment, interest on that amount at the ‘applicable’ penalty rate from the date of judgment until payment and ‘the costs of this proceeding.’ The ‘applicable’ interest rate claimed by Dohrmann was later clarified to be the contractual rate provided for in the loan agreement, as distinct from the penalty interest rate prescribed by statue.
On 6 August 2018, the proceeding was adjourned until 3 September 2018.
On 31 August 2018, the DPP filed submissions in relation to the s 26 application. The DPP did not dispute Dohrmann’s entitlement to be paid out the default judgement at the penalty interest rate, but did dispute Dohrmann’s entitlement to be paid interest at the rate prescribed by contract. As to costs, the DPP submitted that costs were discretionary and that, even if awarded, it was prohibited for them to be met out of restrained property.
Submissions were filed by counsel on behalf of Dohrmann on 10 September 2018. Those submissions are considered in detail below. It is sufficient for present purposes to note that Dohrmann confirmed that it was pressing its claim for payment out of the principal sum in the default judgment at the contractual interest rate, as well as costs on a solicitor-client basis incurred after the default judgment. As to the latter, Dohrmann submitted that it did not seek an order for payment of its costs in this proceeding, but an order that it be paid its entitlements under the loan agreement and the Mortgage.
Further submissions were in due course filed by the DPP on 13 September 2018.
At the hearing of this matter, counsel for Dohrmann did not press the claim for payment out of interest determined at the contractual (as distinct from penalty) interest rate.
The remaining issue between the parties was therefore whether, in addition to having paid to it an amount in respect of the default judgment and statutory interest in respect of that amount (after payment to the ANZ of its security in the properties), Dohrmann should also have paid to it an amount equal to the legal costs it has and will incur in respect of the properties since the making of the default judgment. Those costs were estimated by counsel for Dohrmann to be approximately $18,000.00, comprising principally the costs it had incurred in relation to this proceeding as well as any further legal costs it will incur until the settlement of the sale of the properties.
Dohrmann’s Principal Contention
The central proposition advanced by Dohrmann in support of the making of an order providing for the payment to it of an amount equal to the legal costs it had incurred in respect of the properties since obtaining the default judgment, was that such an order was consistent with and justified by what were said to be its entitlements under the loan agreement and the Mortgage. In support of this contention, Dohrmann relied on the following provisions made by the loan agreement and the Mortgage:
(a) Benevento agreed to ‘irrevocably [secure] the obligations agreed to under this agreement with a mortgage and charge over it’s [sic] interest and over all of it’s [sic] right, title and interest’ in the properties;[1]
[1]Clause 3 of the loan agreement.
(b) Benevento agreed to repay and discharge the loan on the repayment date with interest ‘and all other amounts payable under this agreement and unpaid, to the lender on or before the repayment date’;[2]
[2]Clause 6 of the loan agreement.
(c) sub-cl 1(a) of the Mortgage provided that the ‘Mortgagor shall pay to the Mortgagee … the moneys hereby secured,’[3] which term was defined to mean:
the principal moneys secured and each and all sums of money in which the Mortgagor may now or hereafter be indebted or liable or contingently indebted or liable to the Mortgagee in any manner or on any account whatever….[4]
[3]Sub-clause 1(a) of the Mortgage (emphasis added).
[4]Sub-clause 31(1)(f) of the Mortgage.
Dohrmann also placed particular significance on sub-cls 11(c)-(d) of the Mortgage which provided as follows (emphasis added):
The Mortgagor shall pay to the Mortgagee on demand all costs (and in the case of legal costs as between a solicitor and his own client) expenses duties taxes and other moneys –
…
(c) of and incidental to –
(i)the exercise or attempted exercise of any right, power, authority or remedy conferred on the Mortgagee under or by virtue of this Mortgage or by statute; and
(ii)any proceedings in any court or tribunal in which the Mortgagee is involved to protect any such right, power, authority or remedy including any application for leave to intervene;
(d)on account of any default by the Mortgagor in performance or observance of any covenant;
…
These clauses of the Mortgage were submitted by Dohrmann to be extremely broad. Dohrmann contended that its entitlements under the loan agreement and the Mortgage included all of its costs incurred in this proceeding because Benevento had agreed to pay those costs on a solicitor-client basis and secured its obligations over the properties[5] before they were subject to a restraining order made in this proceeding. What it sought was merely the payment out of its interest under the loan agreement and the Mortgage.
[5]Clause 3 of the Loan Agreement and cl 11 of the Mortgage.
Dohrmann argued that the current proceeding was a proceeding in which it was seeking to protect its right as mortgagee to be paid the amounts owing to it and as such was within the breadth of cl 11 of the Mortgage. It was said to be analogous to an enforcement proceeding brought by a mortgagee seeking possession prior to the exercise of the power of sale. A proceeding of that orthodox type was not, however, available in the present circumstances because of the existence of the restraining order.
Consideration
It is convenient to analyse the issues raised in the proceeding by separately addressing the three grounds relied upon by the DPP in opposition to the variation to the restraining order proposed by Dohrmann.
Ground 1 – Claim premature
The DPP contended that Dohrmann’s claim to be paid out costs was premature because what in substance Dohrmann sought was a costs order in its favour. Whether or not such an order should be made would depend upon whether it succeeded in its claims. Rather than waiting for that situation to pass, Dohrmann was instead impermissibly seeking to have its costs paid in advance.
I reject this argument. Dohrmann does not ask the Court to make a costs order in its favour. What it seeks is an order providing for the payment out of what are said to be its entitlements under the loan agreement and the Mortgage. In the normal course, any application by Dohrmann for payment of its costs would involve an application for a costs order against the DPP.
Ground 2 – Orders sought contrary to s 14(5) of the Act
The DPP contended that the order sought by Dohrmann was beyond that to which it could have any legal entitlement under the Act. The submission was based on s 14(5) of the Act which states:
A court, in making a restraining order, must not provide for the payment of legal expenses in respect of any legal proceeding, whether criminal or civil, and whether in respect of a charge to which the restraining order relates or otherwise.
The DPP relied upon the observation by the Court of Appeal in DPP v McEachran & Ors[6] that s 14(5) is ‘a very wide prohibition’ on a court providing for the payment of legal expenses when making a restraining order.
[6]DPP v McEachran & Ors (2006) 15 VR 268, 280 [50] (Ashley JA, with whom Nettle and Smith JA agreed) (‘McEachran’).
Section 26 of the Act deals with the further orders a court may make when it makes a restraining order, or at a later time. In McEachran Ashley JA stated:[7]
That section sets out examples of orders which might be made: see s 26(5). While the list is not intended to be exhaustive, it certainly does not suggest that the section could be used to make an order that legal costs be met out of restrained property, or that property could be rendered unrestrained in order that a defendant’s legal costs be met.
[7]Ibid 281 [50].
These principles were applied by Ginnane J in Siddique[8] in concluding that s 26 of the Act does not permit the variation of a restraining order to enable the payment of legal expenses. His Honour reasoned as follows:
The Act has to be read as a whole. Section 26, as I have indicated, provides power to make orders in relation to the restrained property both when the restraining order is made and also at later times. Section 14(5) prevents provision for the payment of legal expenses when a restraining order is made. The terms of s 26 do not suggest that it empowers payment of legal expenses out of restrained property when further orders are made ‘at any later time’. In my opinion, if it was intended that the power to make further orders contained in s 26 could be exercised at a later time to permit payment of legal expenses, it would have expressly so provided.[9]
[8][2015] VSC 99 (‘Siddique’).
[9]Ibid [23].
Dohrmann sought to distinguish McEachran and Siddique on the basis that they only established the principle that a restraining order should not be varied to enable payment of legal expenses of an accused owner of restrained property, or to allow the charging of already restrained property to repay Victorian Legal Aid for such costs. Those principles were said not to be relevant to and did not prevent recovery of the full extent of amounts due to a third party and secured by a pre-existing interest in property, regardless of whether they include amounts representing legal costs. This was submitted to follow from the proposition that the Act recognises that the making of a restraining order cannot alter or vary any pre-existing interests in the properties the subject of such an order, which principle was reflected in s 72 of the Act. Section 72 relevantly provides as follows:
(1) If—
(a)a court makes a restraining order in respect of all or some of the property of a person; and
(b)a court, whether before or after the making of the restraining order, makes a pecuniary penalty order against that person—
then there is created, on the making of the pecuniary penalty order or the restraining order, whichever is the later, a charge on all the property of that person to which the restraining order applies to secure the payment to the State of the pecuniary penalty.
(2)If a court makes a declaration under section 70(1), then there is created, on the making of the declaration, a charge on all the property to which the declaration applies to secure the payment to the State of the pecuniary penalty.
…
(4) A charge created by subsection (1) or (2) on property—
(a)except as provided by section 42(1), is subject to every encumbrance to which the property was subject immediately before the pecuniary penalty order or declaration (as the case may be) was made but has priority over all other encumbrances; and
(b)subject to subsection (3), remains on the property despite any disposal of the property.
Dohrmann placed particular emphasis on the provision made by s 72(4) that a charge created by a restraining order ‘except as provided by s 42(1), is subject to every encumbrance to which the property was subject immediately before the pecuniary penalty order or declaration … was made but has priority over all other encumbrances.’[10] ‘Encumbrance’ is defined in s 3(1) of the Act to mean ‘in relation to property, … any interest, mortgage, charge, right, claim or demand which is or may be had, made or set up in, to, on or in respect of the property.’ Dohrmann also relied upon the observations of Hollingworth J in DPP v Ing[11] that, other than in relation to s 42(1), the Act ‘otherwise does not purport to interfere with the principle of indefeasibility of title.’[12]
[10]The exception in s 42(1) refers to the Court discharging a mortgage or a charge where it is satisfied that a mortgage or charge was created to limit the effect of a forfeiture order.
[11][2011] VSC 289 (‘Ing’).
[12]Ibid [25].
Section 72 of the Act does not support the wide proposition advanced by Dohrmann. The section provides for the creation of a charge on property in the circumstances described in subs (1) and (2). The conditions for the creation of a charge on property pursuant to subs (1) are that a court has made a restraining order over property and that the court makes a pecuniary penalty order against the person whose property is the subject of a restraining order. Pursuant to subs (2), a charge is created when a court makes a declaration under s 70(1) (being a declaration that the whole or a part of specified property is available to satisfy a pecuniary penalty order).
The making of a restraining order alone therefore does not lead to the creation of a charge on property pursuant to s 72. The reason for this is apparent from the terms of the section. Subsection (1) identifies that the charges on property contemplated by the section are ‘to secure the payment to the State of the pecuniary penalty.’ This is consistent with the appearance of s 72 in Part 8 of the Act which deals with the subject matter of pecuniary penalty orders. It may be noted that, in the present matter, the Court has not made a pecuniary penalty order against Mr Russo or a declaration under s 70 of the Act.
The prohibition in s 14(5) of the Act is cast in very wide terms. It prohibits the Court from ‘provid[ing] for the payment of legal expenses in respect of any legal proceeding.’ On the face of the provision, an order of the type now sought by Dohrmann would appear to offend against this prohibition: it seeks an order for payment of the legal costs incurred by it since the default judgment, which would include costs in respect of the current legal proceeding.
Given the text of s 14(5) and the observations by the Court of Appeal in McEachran on the breadth of its terms,[13] Dohrmann’s claim for the making of the order sought demanded to be supported by a substantial submission on the construction of the Act which would provide a proper basis for its posited construction of s 14(5).[14] Other than the submissions in relation to s 72 which I have considered and rejected, no such case was put.
[13]See above [20]-[21].
[14]For example, a submission which engaged with the principles of statutory construction summarised by the Court of Appeal in Colonial Range Pty Ltd v CES-Queen (Vic) [2015] VSCA 356[47]-[55].
Dohrmann’s more general submission that s 14(5) needs to be read subject to the principle that a restraining order operates subject to any pre-existing interests in the property the subject of restraint is an unsatisfactorily general basis upon which to read down the express and specific prohibition in s 14(5) as it is not tethered to the particular words used in the section or in other provisions of the Act. The general observations by Hollingworth J in Ing about indefeasibility of title are inapposite and likewise of no assistance in construing the operation and effect of s 14(5). This is particularly so given that Dohrmann’s claim was based upon a contractual, as distinct from proprietary, interest founded in the Mortgage.
Further, as accepted by counsel for Dohrmann, the argument it advanced would require s 14(5) to be read as only prohibiting payment for legal expenses subsequent to the making of the restraining order. Other than an appeal to s 72 of the Act, no basis for reading in these words of confinement was advanced. Parliament could have readily included such a limitation if it had intended the provision to be construed in this way.
The attempts by Dohrmann to distinguish the decisions in McEachran and Siddique also cannot be accepted. While those decisions concerned different factual circumstances, the observations by the Court of Appeal in McEachran about the breadth of s 14(5) are of obvious importance to the construction of the provision. In both decisions, the Court underscored the breadth of the provision.
For these reasons, I accept the DPP’s contention that the order sought by Dohrmann is beyond that to which it could have any legal entitlement under the Act.
Ground 3: Legal expenses not covered by the loan agreement or the Mortgage
In light of the conclusion I have reached in relation to Ground 2 above, it is unnecessary for me to reach a concluded view in relation to the ground advanced by the DPP that, even if the order sought by Dohrmann was not prohibited by the Act, the Mortgage did not permit the payment out of the legal costs associated with this proceeding. I nevertheless make the following observations in deference to the arguments advanced by counsel.
The contention advanced by the DPP was not developed by a submission directed at the actual terms of the Mortgage. It was instead put by way of ‘analogy’ to the general principles and authorities considered by Digby J in Down Town Visuals v Panorama Investments[15] which were encapsulated in the following statement (emphasis added):[16]
Ordinarily, absent some specific agreement, a mortgage will extend to secure the costs and expenses incurred in relation to preserving and enforcing that mortgage, but not the cost and expenses incurred directly or indirectly as a result of defending an attack on the mortgagee’s title to the mortgage or, as here, where the mortgagee seeks recovery against a third party in the event that the liability secured by the mortgage is rendered irrecoverable. …
[15][2018] VSC 427 (‘Down Town’).
[16]Ibid [59]. See further the discussion at [60]-[74].
Without questioning Digby J’s helpful consideration and discussion of principle and the authorities, in the circumstances of this case I doubt the merit of this ground of challenge anchored as it was on the discussion in Down Town. As is made clear by the emphasised words in the above extract and as submitted by counsel for Dohrmann, the discussion in Down Town relates to the general law position in respect of the law of mortgages, which general principles must be considered in light of the terms of the specific agreement between mortgagee and mortgagor. The DPP did not contend that these general principles in some way overrode or qualified the actual terms of the Mortgage in this case. Furthermore, it is to be noted that the relevant issue before the Court in Down Town – whether a mortgagee’s right to interest after judgment was confined to the statutory and not the contractual rate – is far removed from the remaining controversy between the parties in the present case.
Counsel for Dohrmann contended that cl 11(c) of the Mortgage was extremely broad and sufficiently so to cover its legal expenses incurred in this proceeding and any further expenses that may be incurred prior to the settlement of the sale of the properties. Applying the terms of cl 11(c) of the Mortgage,[17] Dohrmann’s security extended to include its solicitor/client costs[18] ‘of and incidental to … proceedings in any court’ in which Dohrmann was involved ‘to protect’ any ‘right, power, authority or remedy conferred’ on it ‘under or by virtue of th[e] Mortgage or by statute.’ I agree that these words have a self-evident expansive and broad reach which would likely to extend to include the current proceedings in this Court in which Dohrmann is involved. Save for the submissions about the ‘analogous’ operation of the principles identified in Down Town which I have considered and rejected above, the DPP did not submit otherwise.
[17]See paragraph 20 above.
[18]The DPP accepted that, if Dohrmann had an entitlement for the payment of its costs, the Mortgage made clear that any such entitlement was to be calculated on a solicitor/client basis.
Disposition
I have concluded that the orders sought by Dohrmann are contrary to s 14(5) of the Act.
Within 14 days, the parties are to submit orders giving effect to this judgement and, in the absence of agreement, any submissions on costs.
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